Sustainability Report Q4 2019
Sometimes when you come to write outlook pieces you are encouraged to think the unthinkable, to consider the new and the innovative. But often the most profound insights come from identifying the trends over the past 12 months that look like they will stick. My bold prediction for 2020 is that climate change will move from being a storm in a tea cup to making the investment weather. There are three main reasons driving climate change’s move from simply “interesting” to actually impacting investments.
Growing public concern: We can see this most clearly in the Schroders Global Investor Study that we undertake for both retail and institutional investors on an annual basis. In 2019, institutional investors chose climate change as the number one engagement issue,
trumping the previously favoured area of corporate strategy. Meanwhile, retail investors made it clear that they are prioritising the planet over other areas such as prosperity and people. It is simply a matter of time before these preferences start to drive significant asset flows into climate-related investments. Yet although the number of climate change sceptics has diminished quite dramatically, those who see climate change as an investment issue are still in the minority.
Rising regulatory pressure: It’s not only the public that has woken up to the challenges posed by climate change. Financial regulators have the topic in their sights and while discussions regarding different approaches have been ongoing for some time, 2020 will see climate change formally entering the investment regulation arena. It’s not hard to imagine that momentum will start to build for investors to change their portfolios as a result; after all, what gets measured gets managed.
Increased demand for corporate disclosure: Companies are being pressured into disclosing more on climate-related risks and opportunities. This can be seen in the growth of the number of organisations supporting the Task Force for Climate-related Financial
Disclosures (TCFD) which stood at 867 in September 2019. As disclosure improves, we expect investors to realise that the second order effects are far greater than they first envisioned.
However, climate-related risks and opportunities are not just confined to equities (shares). As some of our recent work on divestment showed, thinking of climate change in investment terms is about far more than just avoiding fossil fuel equities; we expect scrutiny to
spread to debt markets holdings and bank loan books.
All of this creates a potential opportunity for active management. Climate change is widely known but poorly understood, particularly the knock-on effects. I think we will look back 10 years from now and view climate change investment risk as something that we “just live with” in investment terms, similar to how we’ve had to learn to cope with low interest rates over the past decade.
You may have thought that we had reached peak Greta Thunberg and that climate change was a 2019 issue. My bold prediction for 2020 is that we have only reached the tip of the (quickly melting) climate change investment iceberg.
This quarter we take a look at some of the risks and opportunities climate change may bring including topics such as:
- What is 'energy transition' and why does it matter to investors?
- Why we're at a tipping point for clean energy
- The price of tackling climate change
- Is sustainable air travel an electric dream?
- Three myths surrounding ESG in emerging market debt
If you would like to read more of our insights, please head to our sustainability website.
Read the full report
- Clean technologies and climate policy: the global financial crisis and Covid-19
- Why COVID-19 has made private assets' valuation nuances so important
- China A-shares: the investment themes as the crisis fades
- Active management set to shine as defaults spike
- From liquidity crisis to solvency crisis
- Over $17tn stimulus supercharges markets – but for how long?
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